STRATEGIC PRIORITY: Housing & Homelessness Solutions
AGENDA DATE: April 26, 2023
COUNCIL DISTRICT(S): 7
DEPARTMENT: Department of Housing & Neighborhood Revitalization
EXECUTIVE: Majed Al-Ghafry
______________________________________________________________________
SUBJECT
title
Authorize the Dallas Public Facility Corporation to acquire, develop, and own Larkspur Fair Park, a mixed-income, multifamily development to be located at 3525 Ash Lane (Project) and enter into a seventy-five-year lease agreement with Fair Park Holdings, LP, or its affiliate, for the development of the Project - Estimated Revenue Foregone: General Fund $361,038.00 (15 Years of Estimated Taxes)
body
BACKGROUND
Fair Park Holdings, LP (Applicant), a Delaware limited liability company, submitted an application to the Dallas Public Facility Corporation (Corporation) for the development of Larkspur Fair Park, a 290-unit mixed income multifamily development to be located at 3525 Ash Lane (Project). The Corporation will own the site and improvements and lease the Project back to the Applicant or its affiliate. Pursuant to the Texas Public Facility Corporation Act, Chapter 303 of the Texas Local Government Code, as amended (Act), any public facility owned by a Public Facility Corporation is exempt from all ad valorem taxes. To qualify as a public facility, pursuant to the Act, a multifamily property must reserve at least 50% of the units for residents earning at or below 80% of the area median income (AMI). The Project will reserve 50% of the units for residents earning less than 80% AMI and 50% of the units will be market rate.
The Applicant will be a limited liability company owned by Larkspur Capital. Larkspur Capital is a Texas-based real estate development and construction company that is actively developing a portfolio of multifamily properties. Their current portfolio includes eight multifamily projects around the Dallas area. In addition to their multifamily ventures, Larkspur Capital is experienced in developing retail, industrial, and office properties as well.
The Project will be constructed as a 6-story midrise product with wrapped garage parking and will include 290 residential units. The unit mix will consist of 108 studio units, 123 one-bedroom units and 59 two-bedroom units. The units will include energy efficient appliances, granite countertops, in-unit washer/dryers, and other Class-A features.
The Property will also include a co-working space, dog park, secured access, and 24-hour security. The Market Value Analysis (MVA) market type is uncategorizable as the land is not currently developed with residential uses. The development is well-located in close proximity to job centers and community amenities. The site is directly adjacent to Fair Park and all of the amenities there, a four minute walk to the Fair Park Dallas Area Rapid Transit Station, and also is in close proximity to the Baylor Medical Center. Also nearby is an ALDI grocery store and the popular Deep Ellum restaurant and entertainment district. This is a centrally located development that will be well suited to serve the needs of the mixed income tenants it intends to serve.
The Applicant will consult with the Office of Integrated Public Safety Solutions (OIPSS) for security input, community activities and the Crime Prevention Through Environmental Design (CPTED). The Applicant and OIPSS will continue to work together to ensure the community is secure and take proactive measures to ensure the safety of the residents that will include security cameras with Dallas Police Department access, individual entry key fobs, lighting, and security access gates/entry points.
The anticipated unit mix and rental rates are as follows:
|
Unit Type |
AMI |
Units |
Rent |
|
Studio |
80% |
54 |
$1,364.00 |
|
Studio |
Market |
54 |
$1,370.00 |
|
1BR |
80% |
62 |
$1,462.00 |
|
1BR |
Market |
61 |
$1,650.00 |
|
2BR |
80% |
30 |
$1,754.00 |
|
2BR |
Market |
29 |
$2,100.00 |
The rents for individuals and families earning between 60% and 80% AMI are meant to provide housing to the “missing middle” of the market: residents that earn above low-income housing tax credit income restrictions of 60% AMI but would be cost burdened by market rents. These incomes range from approximately $54,560.00 to $77,900.00 in the City based on family size and represent a wide variety of employment sectors including, but not limited to, teachers, first responders, government employees, health care providers, etc. The rents for individuals and families earning below 60% are included to provide deeper affordability at this property. These incomes range from $40,920.00 to $58,440.00 depending on family size.
Total development costs are anticipated to be approximately $70,278,652.00 which includes the acquisition price for the land. The development budget less soft/financial costs is anticipated to be approximately $53,819,110.00, which is $185,583.00 per unit.
|
Proposed Financing Sources |
Amount |
|
Mortgage Loan |
$38,659,259.00 |
|
Developer/Investor Equity |
$31,625,393.00 |
|
Total |
$70,278,652.00 |
|
Proposed Uses |
Amount |
|
Development Costs |
$53,819,110.00 |
|
Land Accquisition |
$ 6,929,620.00 |
|
Soft Costs |
$ 7,029,922.00 |
|
Interest Revenue |
$ 2,500,000.00 |
|
Total |
$70,278,652.00 |
The Project will be owned by the Corporation and leased to the Applicant and other potential owners for a period of 75 years. In consideration for the Corporation’s participation in the Project, the Corporation is estimated to receive $6,900,197.15 over the initial 15 years of the lease. Potential proceeds to the Corporation include (1) a $250,000.00 structuring fee paid at closing; (2) a general contractor fee of $616,255.70 paid at closing; (3) lease payments starting at $371,000.00 and increasing by 3% annually upon stabilization; (4) a 15% sales commission after repayment of debt, equity, and preferred equity returns upon first sale of the Project and (5) a 2% sales commission on all future sales. In the event of a sale throughout the life of the Project, the Corporation will continue to receive the annual lease payments. Upon termination of the 75-year lease, the Project will be owned free and clear by the Corporation.
The revenues of the Corporation will be used to fund operations and the provision of additional affordable and workforce housing throughout the City. This proposed development results in foregone tax revenues for the City while the DPFC owns the asset. The 2022 City tax bill for this property is $19,412.00 and the 15-year estimate of foregone taxes is $361,038.00. However, the workforce housing rental savings of $3,695,976.17.00 over 15 years and the estimated $7,766,452.75 in revenues provides the City with almost $11,462,428.91 in benefits that outweigh the foregone revenue.
The Corporation’s estimated revenues were calculated by the Corporation’s partnership counsel and financial advisors. Market rent comps and current construction costs were analyzed to ensure the project costs were reasonable for the market. Corporation financial advisors also confirmed that but for the ad valorem tax exemption, the Project would not be economically feasible and would not attract responsible debt and equity investment in the property. The Corporation’s revenue consideration and affordability levels were also analyzed to confirm that the ad valorem tax exemption does not over subsidize the Project.
The City is authorized by the Act to create a public facility corporation for the purposes established in the Act, including the financing, acquisition, construction, and leasing of public facilities under the Act. On June 24, 2020, the City Council authorized the creation of the Corporation to further the public purposes stated in the Corporation’s articles of incorporation and bylaws pursuant to the Act by Resolution No. 20-1035. Section 6.2 of the Corporation’s bylaws requires City Council approval by written resolution prior to entering into any agreement that would result in a property tax exemption.
Per Section 7.3 of the Corporation’s bylaws, any Public Facility related to multifamily residential development of the Corporation shall not proceed unless (1) the development of the Public Facility could not be feasible but for the Corporation’s participation, and (2) the development of the Public Facility is in furtherance of the City of Dallas’s Comprehensive Housing Policy (CHP), as amended.
Staff and the Corporation’s Counsel and Financial Advisors have confirmed that this Project would not be feasible but for the Corporation’s participation and that the Project furthers the goals of the CHP. Staff recommend approval of this item to allow this mixed-income housing development to move forward.
PRIOR ACTION/REVIEW (COUNCIL, BOARDS, COMMISSIONS)
On February 28, 2023, the Dallas Public Facility Corporation Board of Directors approved the negotiation and execution of a term sheet with the Applicant.
The Housing and Homelessness Solutions Committee was briefed regarding this matter on March 21, 2023. <https://cityofdallas.legistar.com/gateway.aspx?M=F&ID=7616ee07-4ce8-4d2d-ae30-c407ef5f48dd.pdf>
On April 12, 2023, the City Council adopted the Dallas Housing Policy 2033 to replace the CHP by Resolution No. 23-0443. On April 12, 2023, City Council also authorized the continued operation of the housing programs previously authorized under the CHP, but now documented and restated in the Dallas Housing Resource Catalog under Resolution No. 23-0444.
FISCAL INFORMATION
Estimated Revenue Foregone: General Fund $361,038.00 (15 Years of Estimated Taxes)
MAP
Attached